It is a decision that has been a long time coming. In future, the EU wants to oblige large corporations to publish their tax data. What’s behind it?
After years of tough negotiations the EU has agreed: Large corporations such as Apple, Google or Amazon will have to make it transparent in future how many taxes they have paid in the EU and in tax havens. A step that should ensure more tax equity.
But there is also criticism of the idea, for many NGOs the plan does not go far enough. t-online explains what exactly was decided, why this is a milestone – and what this agreement means for the taxpayer.
What was decided?
Negotiators from the EU Council of Ministers, in which the EU states are organized, and the EU Parliament have agreed on a compromise for more tax transparency. In the future, multinational corporations will have to disclose in which EU country they pay how much – or how little – taxes.
This is to make it clear whether the taxes paid correspond to economic activities. If the result is that the tax payments seem very small due to the size of the company, it is easier for companies to be pilloried. This mainly affects multinational corporations that operate in different countries.
The rules will apply to these companies in the future
These new so-called “country-by-country” rules are to apply to multinationals with a worldwide turnover of more than 750 million euros. In a country-specific report, they should publish, among other things, the net sales, profit or loss before taxes and the income taxes actually paid. The EU also wants to make the number of employees and subsidiaries so transparent.
The data should be broken down for all EU countries. The obligation also applies to countries on the so-called black list of tax havens as well as to countries that are on the so-called gray list for at least two years in a row, i.e. the milder form of the black list. This is about Turkey.
This is how large corporations avoid tax payments
The background to the regulation is that many global corporations attempt to pay hardly any taxes or comparatively few taxes by cleverly shifting profits. It works like this:
For example, one company is based in France. In order to save taxes, it tries to count the profits down. This is possible because the company pays high licenses or interest for services to a subsidiary in a low-tax country – and the income is so low.
EU countries lose billions through tax avoidance
According to the Tax Justice Network think tank, EU countries are responsible for 36 percent of the world’s taxes lost through corporate tax abuse. At the same time, it is estimated that the EU states are losing more than 50 billion euros a year through tax avoidance by large companies.
And right now, after the severe pandemic crisis, it is our duty to ensure that all economic actors do their fair share of the economic recovery. Low-tax countries in the EU such as Ireland, Luxembourg and the Netherlands are also considered to be profiteers.
EU rules won’t come until 2023
In the EU, Portugal, which currently holds the presidency of the 27 states, cut the knot for the project that has been debated since 2016. Only in the spring did the country organize a majority in the EU Council of Ministers – incidentally without Germany, where the finance and economics ministries are not in agreement.
On Tuesday evening, Portugal also managed to reach an agreement with representatives of the European Parliament. The agreement reached by negotiators from the EU institutions has yet to be formally confirmed by them; only then can they come into force and be implemented within 18 months – i.e. by 2023.
Is the deal a breakthrough?
Definitely. Because: The EU Commission had already made the proposal to change the accounting in 2016. The European Parliament determined its negotiating position in 2017.
The EU states only accepted country-by-country reporting this spring with the necessary majority. Germany abstained. Now an agreement has been reached with the EU parliamentarians. “The agreement is a milestone for tax justice in Europe,” said the financial policy spokesman for the Greens in the European Parliament, Sven Giegold. Tax dumping will be visible to everyone.
Germany’s Finance Minister Olaf Scholz (SPD) also praised the plan. “The new rules create more transparency and prevent international corporations from cheating their way out of tax liability,” he said. “There has to be an end to dirty tax tricks. Even multinationals have to pay their fair share, just like every small retailer next door.” These rules must now be adopted quickly.
What does the agreement mean for me as a taxpayer?
At first glance, little. On the second, however, it quickly becomes clear that you as a taxpayer could also benefit from the new regulation. Because large corporations find it difficult to avoid taxes.
At least that is the hope, after all, it is more than 50 billion euros – annually. If corporations can avoid fewer taxes in the future, this can ultimately benefit you again. Because the EU can put the tax money into projects, for example against climate change or in the infrastructure.
What’s the criticism of that?
It is questionable how much it will bring if corporations are publicly pilloried in the future. CSU finance expert Markus Ferber sees the new EU rules as a “small step towards more tax transparency”, but warns against expectations that are too high. “The added value of this directive will remain manageable.”
The real problem lies elsewhere, namely in the competition between states for low tax rates. “A common basic understanding of the European approach to corporate tax would be a much more effective tool than public pillory,” says Ferber.
“Many opportunities to evade taxes in secret”
The charity Oxfam criticized that many tax havens were not on the EU lists. There will be transparency for the 27 EU countries and 21 on the black and gray lists of around 200 countries worldwide.
“EU lawmakers have given multinational corporations many opportunities to continue to evade taxes in secret by shifting their profits to tax havens outside the EU – such as Bermuda, the Cayman Islands and Switzerland,” said Oxfam’s tax expert Chiara Putaturo.
The organization Transparency International also expressed harsh criticism. The now agreed legal text leaves large loopholes for companies. Main point of criticism: The obligation to disclose only applies in EU states and the countries on the lists of tax havens, but not worldwide.
Transparency called on the EU states and parliament to refuse to agree to the compromise. Because both institutions still have to finally vote on the agreement. Actually, that’s a matter of form.
What about global tax reform?
This is still pending and initially has nothing to do with the current tax cleaning per se. Under the umbrella of the industrial nations organization OECD, almost 140 countries are currently striving for a tax reform with two pillars, a global minimum tax and a new form of taxation of digital services from corporations such as Google, Facebook and Apple.
The US recently proposed 15 percent for the minimum tax. Germany and France consider this level to be realistic and expect an agreement to be reached this year. This would be a great success against tax dumping.
Such a minimum tax would also have consequences for German companies: Because many international corporations from Germany earn mainly abroad, in countries where taxes are lower than in Germany. With a minimum tax, you would have to dig deeper into your pockets in the future.